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Over $40 billion invested in patents each year with only 19% of companies believing they own the right patents. Google, Facebook and Red Hat urge patent owners to focus on strategic benefit

25th March 2020 | Comments Off on Over $40 billion invested in patents each year with only 19% of companies believing they own the right patents. Google, Facebook and Red Hat urge patent owners to focus on strategic benefit

Cipher, the leading provider of Strategic Patent Intelligence, published the first global report today on optimising investment in patents. The key findings include:

  • Over $40 billion is spent on patents each year, but less than 20% of companies report that their patent portfolio is the right size
  • Strategic investment in patents mitigates exposure to damages and royalties, estimated ta 5% of company revenue
  • Patent strategy is increasingly being scrutinised by the C-suite and the board
  • Improvement in AI and machine learning means that on average 9% of their patent budgets are invested in Strategic Patent Intelligence

Cipher Report on Portfolio Optimisation

Patents are one of the primary ways that companies protect their investment in technology.  The Cipher Report on Portfolio Optimisation highlights the challenge of ensuring that patents deliver value in an era when the volume and variety of patented technologies has exploded. Inventors filed for over 3m new patents in 2019 alone. Only 19% of patent owners report that their portfolio is perfect.

Source: Cipher “How Many Patents Are Enough?” survey in collaboration with IAM

Matthew Weinstein, Legal Director, Accenture belies that “portfolio optimisation is a key part of a modern IP strategy and is something that needs to be looked at frequently.” This view is echoed by Gareth Jones, VP Intellectual Property, BenevolentAI: “to be effective with both patent strategy and portfolio optimisation, we need to have the best understanding of the external market, the technology landscape and competitive threats.”

Understanding why companies own patents

Over 62% of companies report that the primary objective of their patents is defensive (either to neutralise threats posed by other owners of patents or to act as a deterrent). Nigel Swycher, CEO of Cipher, states: “In a world where technology is the bedrock of products and services, companies are being forced to think differently about how they use patents to protect their business. This will inevitably lead to a world where collaboration and licensing dominates over litigation as the intangible transaction of choice.”

Source: Cipher “How Many Patents Are Enough?” survey in collaboration with IAM

Daniel Hernandez, responsible for managing Intellectual Property at Stryker’s position says, “the goal is to avoid litigation, so having a decent sized portfolio provides the perfect protection for our products.”

How companies optimise their patent portfolios

For the majority of companies, optimising their patent portfolios requires ensuring that the company’s revenue is protected against third party demands. Data from the Analysis Group indicates that on average 4.5% of revenue is exposed to third party royalties. To mitigate this risk, models are used by many companies to calibrate their ownership position. Companies report that on average 9% of their patent budget is spent of Strategic Patent Intelligence.

Jared Engstrom, Head of Patent Development at Red Hat, who was recently acquired by IBM for $34 billion believes that “if you’re spending several million dollars a year on patents, then it seems like a beneficial trade-off to spend a small portion of those expenses specifically on insights to drive better strategic decisions.”

Source: Cipher “How Many Patents Are Enough?” survey in collaboration with IAM

The role of AI and machine learning

Many companies are harnessing advances in AI and machine learning to access the patent data necessary to build robust and reliable models. Combining this with publicly available revenue data enables companies to make more rational and evidence-based decisions.

Facebook and Google were some of the first companies to implement this approach. Jeremiah Chan, Head of Patents at Facebook explains: “with improvements in AI technology and other analytics platforms like Cipher, today we are able understand the numbers of patents that are relevant to certain technology areas at a push of a button. This insight can help you determine whether you need more or less patents in a particular area and start to set parameters around the investment required to put the company in good standing relative to its business objectives.”

Indeed, Mike Lee, Head of Patents at Google thinks the same way: “data science and machine learning helps us better manage and shape our portfolio. The ML tools and models we’ve built have enabled us to operate more efficiently and at scale so that we can execute on our patent strategy.” 

In a climate where economic growth depends on technology and the Intellectual Property rights that protect this investment, it is entirely appropriate that senior corporate executives are paying close attention to the strategic rationale underpinning patents, in addition to the blunt measure of cost. The substantial investment in Strategic Patent Intelligence is not only justifiable in its own right, but also because of its ability to mitigate the substantial risk of damages and royalties. This is the reality faced by organisations across a broad range of sectors.

About the Cipher Report on Portfolio Optimisation

The Cipher Report on Portfolio Optimisation is the first global study to investigate the challenges of building a portfolio that is the right size. It is based in a survey conducted in collaboration with IAM under the heading How Many Patents are Enough?

The report builds on over 100 survey responses and is supplemented by interviews with IP experts. The Report expands on Cipher’s earlier work on the design of models to provide evidence for those tasked with developing and communicating patent strategy. Responses are international, cross sector and include owners of both large and small portfolios.

For more information contact:

Nigel Swycher, CEO, Cipher

Francesca Levoir, Head of Marketing, Cipher

Cipher Report on Portfolio Optimisation available for download here.